Long-time readers should note some significant changes in how I communicate in the public domain. The primary purpose of this forum is now to attract new contacts with professional industry expertise to share research and receive feedback (confirmation / refutation) regarding my investment theses.
Accordingly, this document should not be construed as an endorsement or recommendation of the companies or securities discussed herein. I am not an investment advisor and this is not an investment thesis. It is merely one part of the story, which I present for debate in hopes of determining all risks and upside potential. The disclosure at the end of this piece is critical to understanding the content of this document. Further, I frequently trade my positions and may buy, sell, or short the securities mentioned herein at any time, regardless of the facts or perceived implications of this article.
Among my trades today, I sold some Facebook (FB) in the AM because it was acting weak as compared to the market. However, I bought it back when the FTC news broke (and the stock fell to -5% on the day). The stock hit the bottom of my risk/reward channel and I suspect that the FTC news was anticipated (I certainly expected it). That worked nicely and more Wall Street firms have come out in support of FB. I agree with them and don’t see this as an issue that justifies the 23% correction we’ve seen in the shares.
While writing my latest update on Smith Micro (SMSI), a reader informed me that their Sprint product has now gone over 100,000 downloads. I estimate that Sprint only had 350,000 customers on their old product, so this appears to be significant progress. In addition, my analysis is coming up bullish. I believe that 1) Sprint is totally committed to SMSI, 2) the negative reviews represent a tiny % of the total downloads and are being used by SMSI to work out any leftover bugs, 3) a major new release is coming in June, 4) Sprint will stop supporting the old product in 2 months, and 5) SMSI’s Q2 will include revenue recognition from Sprint, marking the first of many quarters of accelerating quarter/quarter and year/year growth.
Accordingly, I increased my position again today, extending its lead as my largest position.
GAIA submitted a filing with the SEC, disclosing that its CFO bought 12,000 shares in their offering. Before the offering was finalized, GAIA said that insiders expressed interest in participating… and they did. That’s bullish. Alongside that, B. Riley gave the stock a $23 price target. My chart supports that target, but not until year-end. So, with the stock up 12% this morning (and hitting the top of my risk/reward channel again), I sold the extra shares I bought last week at a nice profit and sold some April 17.50 calls at an average price of $0.70. I remain bullish, but think the stock just needs to breathe a little before moving substantially higher.
Finally, I covered a quarter-million dollar short against the S&P 500 when the index pulled back to “only” being up 0.7% this morning. It was a small position in my portfolio, but served as a hedge/placeholder. With the S&P now up 2.7%, covering that short saved me $5,000. Adding that to my new purchases, I’m now more long than I’ve been in awhile. Hopefully, the market rebounds further from here. Many individual stock charts appear ready for it.
ORCL Succumbing to WDAY?
Oracle (ORCL) reported a rough quarter. SaaS revenue missed estimates and growth has slowed significantly. The stock was down 10% on the news. This is in-line with my thesis that Workday (WDAY) – and Saleforce (CRM) for that matter – have now become large and robust enough to make a real dent in ORCL’s business.
Based on industry discussions, ORCL doesn’t have a true native Cloud product set… and I hear that SAP’s tech is even more dated than ORCL’s. This sets the stage for WDAY (and others, like CRM) to continue gaining market share.
I continue to own WDAY and remain vigilant for short-term opportunities to optimize profits by occasionally sell covered calls when the stock is high, buying more when it is low, etc… all while keeping my positive long-term view in mind.
Speculating on First Cobalt (FTSSF)
I bought some FTSSF a few weeks ago on the news that Apple (AAPL) was looking to lock up supply (indicating that demand might be increasing and/or supply might soon become tight).
Monday AM, they announced some positive exploration news. Also, a Google search shows that cobalt is seeing interest and that China is an issue in the market for cobalt. Add its potential as an inflation hedge and everything seems to point in a positive direction for First Cobalt.
Of course, I’m no metals / mining expert, so I’m keeping my investment small. However, it seems like a good bet and the chart looks good.
MoviePass: Being Bearish Doesn’t Make Me A Bear
Here’s an updated / edited version of something I published (in the comments section of one of my posts, I believe), about a week ago. There are some new data points and thoughts here:
I have nothing against MoviePass. Personally, I like Ted. We had breakfast across the street from my home a couple months ago and I offered to assist with some yellow flags I saw coming up. That offer still stands. Aside from my volunteer coaching, I have plenty of time to give (as many of you already know).
- Just so it’s 100% clear and publicly disclosed (which can serve as evidence against me), I am not short HMNY. Also, to my knowledge, nobody I know is short HMNY. Those comments are true going back as far as the launch of this blog. I am simply covering this story, which I find fascinating.
- Of course, the coverage also attracts readers, many of which are professionals who have reached out to me to collaborate on stock research (which is the goal of my blog). This is NOT a stock picking blog. It’s a blog for collaborative research.
- 100% of my research stems from data points provided by MoviePass / HMNY management, coupled with publicly-available information. My intent is not to smear the company. I’m simply extrapolating. If those calculations turn positive, I’ll be the first to write about it.
- Similarly, if management wishes to walk through my findings with me, I’m happy to do so. However, my last few communications went unanswered, so I gave up trying.
- At this time, I do NOT believe that MoviePass is at risk of going bankrupt. That would require a debt load. Of course, a bankruptcy concern may arise if they can no longer attract equity-based funding. This will become a threat if their new customer sign ups aren’t enough to offset their ongoing losses and deferred revenue liability. The latter issue can’t be understated. I believe that will become increasingly apparent when HMNY’s 10-K is released in the coming weeks.
- People are speculating about MoviePass’ mysterious big backer. Personally, I believe it to be HMNY. They hold an anti-dilute right that was written in such a way that it discourages outside investors. I know, because I was invited to participate in a late-2017 funding round. Upon reading the anti-dilute segment of MoviePass’ agreement with HMNY, I decided to not follow up on the investment.
- NONE of what I said above is meant to sound negative about the company. I do believe that there’s a path to success. However, I also believe that the business metrics, as publicly stated by management, demonstrate a worrisome trend that will require a level of financing that will dilute common shareholders beyond the ability to profit from their investment, even if MoviePass is ultimately successful.
- FYI, in order to be truly influential, I believe MoviePass will need to have at least 5% of all movie-goers as customers. That’s about 12M subscribers. Interestingly, that’s the same number that Canaccord mentioned in their report. Of course, I take Canaccord with a grain of salt, but they are bullish and saying this. The bad news is that MoviePass isn’t expected to have 12M subs until 2022. By that time, they will have presumably gone through numerous new rounds of funding, each of which requires a growing number of shares to raise $100M (because the shares have been dropping some 35% after each round).
- The latest interviews show that MoviePass is mainly getting revenue from small theater chains. That’s what I expected and not good news for their hopes further upstream. As I observed long ago, MoviePass is the ally of small theaters (who are desperate for market share) and therefore the enemy of mid- to large-sized chains (from whom the small chains want to steal share).
- Further, MoviePass’ future revenue prospects have been shrinking. They’ve admitted that they don’t have data, so “Night At The Movies” is a pipe dream at worst and a distant possibility at best. Trends with the small vs. large theaters shows that MP won’t get 20% from as many theaters as people expect (unless they can attract 12M customers). The big 5 studios aren’t going to give them a cut, because they have zero reason to pay (or fear) MP. People will go see Avengers no matter what.Finally, and probably least important, those expecting a credit card aren’t considering that 1) that requires a credit check, which is easy enough, but not something MP is set to do and 2) much more importantly, the credit card landscape has suddenly become significantly more competitive, with Amazon possibly leading the way. People aren’t going to take a credit card from just anyone (and besides all of that, the $$$ numbers simply aren’t big enough to move the needle for MoviePass anyways).
- The only good news I see on the horizon is that my utilization estimate for March is 1.8 movies per subscriber per month (down from 2.3 in February) and 1.4 for April. That could possibly create a tradeable bounce for the shares. However, that appears to just be the calm before the May/June/July storm (when my model has utilization jumping back over 2.0 again). Personally, I won’t be trading it, because the blockbuster season is starting to become anticipated. As a reminder, I believe anything over 1.3 is fatal for their long-term viability. As long as they stay above that number, investors can expect a growing number of dilutive financings.
Conclusions: If these issues turn positive, I will likely go long and/or be the first to write about it. To be clear, I WANT MOVIEPASS TO SUCCEED. I like the service. I like Ted Farnsworth. I love the story… but I simply cannot ignore what the numbers tell me and falsely cheerlead a business model that is not 1) demonstrating the efficacy that was originally described and 2) showing an acceptable path to profitability for common shareholders.
Some Random Data Points From The MoviePass Survey
A few weeks ago, I was going to do a piece on the MoviePass survey data. However, more important things have come up. Plus, I viewed the data as negative and I’ve been beating them up enough. However, to avoid letting the data go to waste, here are the raw notes I was assembling:
11% of Americans are frequent moviegoers
MoviePass has only signed 1% of Americans
So, it’s highly likely that, about 25% of Americans “interested” in MoviePass (11% – 1% = 10%… and then, 10% / 40% = 25%) are frequent moviegoers, since most (if not all) frequent moviegoers should be interested in MoviePass.
Looking at it from another angle, the survey results suggests that 42% of Americans spend over $11 per month on movies (I estimate the average to be closer to $23). Now, think about that. Only 48% are interested in MoviePass (including those that already signed up), but 42% of Americans are likely to attend an average of 2 movies per month.
Of course, MoviePass says that their customers double their moviegoing when they get a MoviePass, so those 42% of Americans are liable to attend four movies per month if they get/have a MoviePass (even accounting for those who already have one). That’s about six times as many people as MoviePass ever expects to sign up.
Thankfully, I found the survey data to be skewed. However, even accounting for the biases, this data corroborates all of the other data I have seen of late. It all points to heavy losses throughout the spring and a high likelihood that the company needs to raise another $100 million before the first day of summer.
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Disclosures / Disclaimers: I am long SMSI, FB, WDAY, FTSSF, and GAIA. I am also short the GAIA April 20 17.50 calls. I have no position in HMNY, nor have I traded the stock since launching this blog. Further, I am not aware of anyone who has been short HMNY or its derivatives since launching this blog. This is not a solicitation to buy, sell, or otherwise transact any stock or its derivatives. Nor should it be construed as an endorsement of any particular investment or opinion of the stock’s current or future price. To be clear, I do not encourage or recommend for anyone to follow my lead on this or any other stocks, since I may enter, exit, or reverse a position at any time without notice, regardless of the facts or perceived implications of this article.
I am not a financial advisor. Nor am I providing any recommendations, price targets, or opinions about valuation regarding the companies discussed herein. Any disclosures regarding my holdings are true as of the time this article is written, but subject change without notice. I frequently trade my positions, often on an intraday basis. Thus, it is possible that I might be buying and/or selling the securities mentioned herein and/or its derivative at any time, regardless of (and possibly contrary to) the content of this article.
I undertake no responsibility to update my disclosures and they may therefore be inaccurate thereafter. Likewise, any opinions are as of the date of publication, and are subject to change without notice and may not be updated. I believe that the sources of information I use are accurate but there can be no assurance that they are. All investments carry the risk of loss and the securities mentioned herein may entail a high level of risk. Investors considering an investment should perform their own research and consult with a qualified investment professional.
I wrote this article myself, and it expresses my own opinions. I am receiving no compensation for it, nor do I have a business relationship with any company whose stock is mentioned in this article. The information in this article is for informational purposes only and should not be regarded as investment advice or as a recommendation regarding any particular security or course of action.
The primary purpose of this blog/forum is to attract new contacts with professional industry expertise to share research and receive feedback (confirmation / refutation) regarding my investment theses.